Irish Development Land Market Review Q2 2015

Irish Development Land Market Review Q2 2015

Irish Development Land Market Following a somewhat subdued first quarter of 2015, the development land market gained momentum during the second quarter bringing the total value of transactions to 219 million in the first half of the year. Early indicators would suggest that the development land market will continue to perform strongly during the second half of 2015 as there are a number of larger sites in the pipeline such as Project Trinity. In terms of the type of development land sold, it was a somewhat mixed opening six months. The year commenced with strong performance in the commercial land sector, followed by a more active second quarter in terms of residential land sales. While there was a notable uplift in the number of larger deals transacted during the second quarter, over half of the sites sold across the regional centres were reported below 1 million in value. Development land activity was largely focussed in the Greater Dublin Area, which saw a total of 207 million worth of land transacted during the first six months of the year. Other regional centres, in particular Cork, witnessed strengthening market conditions and increasing levels of activity. In terms of supply, the first half of 2015 saw an increase in the availability of development land. However, apart from a few larger sites, supply remains dominated by smaller sites. The availability of welllocated residential land, in particular, is perceived to remain highly constrained. Quarter two saw continued strong demand for commercial and residential land. While the supply of good stock remained constrained, several noteworthy transactions occurred, including Marianella, Rathgar. We expect to see significant additional supply of good residential sites sold in the second half of this year, which will help provide a clearer indicator of the effects of the regulatory changes of the mortgage market on land values. The best remaining prime commercial sites are likely to be sold from 2016 onwards, most remain under asset management as owners work up planning permissions to enhance value prior to sale or development. Donal Kellegher, Director, Head of Advisory & Development, DTZ Sherry FitzGerald 2 Irish Development Land Market Review - Q2 2015

Transaction Activity The second quarter of 2015 saw a total of 128 million worth of development land transact across 27 development sites. While the number of transactions were on par with the first quarter, the total value transacted during the second quarter was higher. This brings the total figure to 219 million during the first half of 2015. Similar to the first quarter, the Dublin development land market continued to dominate activity in the second quarter. Overall, during the first six months of 2015, Dublin along with the commuter counties of Meath, Kildare and Wicklow accounted for 95% of the total value of development land transacted. This was followed by Cork at 3% and Limerick at 2%. An analysis of transaction activity by volume reveals that Dublin accounted for 44% of the total number of individual sites sold during the first six months of the year. Cork witnessed an uplift in activity during quarter two, accounting for 18% of transactions, while Limerick absorbed a further 17%. Figure 1 Development Land Sales by Value and Location, H1 2015 Source: DTZ Sherry FitzGerald Research Figure 2 Development Land Transactions by Volume and Location, H1 2015 An analysis of transaction activity by development land type reveals that in the first six months of the year, residential land accounted for 117 million or 53% of total land sales. While quarter two saw a similar number of residential deals transact relative to quarter one, there was a significant increase in the number of larger size deals. Notably, this was supported by two high profile deals, Marianella, Rathgar, Dublin 8, sold for in excess of 40 million and the site at Brennanstown Road, Dublin 18, sold for approx. 18 million. Together these two sites accounted for half of the residential sales during the six month period. Source: DTZ Sherry FitzGerald Research 3 Irish Development Land Market Review - Q2 2015

Transaction Activity Commercial development land sales accounted for 74 million, or 34% of the total land sales during the opening half of 2015. Following a very strong opening quarter, which saw 72 million worth of commercial land transacted, including the sale of Cumberland House for 49 million, quarter two was more subdued with no high-profile sites transacting. Figure 3 Development Land Transactions by Value and Type, H1 2015 Mixed use development land accommodating commercial, community and residential land use potential, accounted for 28 million, or 13%, of the total value transacted during the opening half of 2015. The sale of the Grace Park site, Drumcondra, Dublin 9, for in excess of 9.5 million in quarter two boosted activity in the year to June. The profile of development land sales by price range reveals that small scale transactions were the most dominant type; 35% of the sites sold were 100,000-500,000 in value, 22% were 500,000-1 million, and 30% were 1-5 million. Transactions in excess of 5 million in value only accounted for 13% of the total, with quarter two witnessing an increase of larger size deals. Source: DTZ Sherry FitzGerald Research Figure 4 Development Land Transactions by Price Range, H1 2015 Domestic buyers remained the most dominant purchaser type across the regional centres with a small number of international purchasers active in the market. Furthermore, raising development finance remains challenging for many residential developers. The Irish construction firm Cairn Homes by Alan McIntosh and Michael Stanley was listed on a stock market in early June 2015, succeeding to raise 400 million in equity capital following its launch on the London Stock Exchange. Source: DTZ Sherry FitzGerald Research 4 Irish Development Land Market Review - Q2 2015

Transaction Activity Table 1 Top 5 Development Land Transactions Q2 2015 PROPERTY COUNTY TYPE DESCRIPTION PRICE Marianella site, Orwell Road, Rathgar, Dublin Dublin Residential An approx. 8 acre site with planning permission for 199 apartments and 12 five-bedroom, semi-detached houses. Sold in excess of 40M Brennanstown Road, Carrickmines, Dublin 18 Dublin Residential A residential development site extending to approx. 7.8 acres with planning permission for 149 residential units. Sold approx. 18M Gracepark Road, Drumcondra, Dublin 9 Dublin Mixed Use A 17 acre site with existing buildings and part of a larger holding with a planning permission for education, institutional and residential development of 295 units. Sold in excess of 9.5m Former Europa Motors, Newtown Avenue, Blackrock Dublin Residential A 1.3 acre site with zoning for residential development and a lapsed planning permission for 60 large apartments. Sold approx. 7.5M Bettystown Town Centre Development, Bettystown Meath Mixed Use A partly completed development site with a purpose built 120 bedroom hotel and leisure centre, 10,918.5 sq m of retail and 9,901 sq m of office space, 48 partly constructed apartments and approx. 30 acres of land zoned for various uses. Sold approx. 3.7M Source: DTZ Sherry FitzGerald Research 5 Irish Development Land Market Review - Q2 2015

Residential Land Market The moderation in the pace of second-hand house price growth that emerged in the latter months of 2014 remained in place for the first half of 2015. This moderation in growth was largely led by the Dublin housing market with prices rising by 1.5% during the opening six months of 2015. This compares to a much higher 12.6% in the same period in 2014. The most robust price growth during the opening half of the 2015 was witnessed in the South-West, where notably Cork saw relatively strong price growth of 6.4% in the six months to end June. In terms of the new homes market, a notable uplift in activity has been seen over the past year. According to the Property Price Register, 5,022 new homes were sold during the twelve months to end quarter one of 2015. Quarter two saw This reflects an increase of 47% a significant from the comparable period in increase in larger 2014. During the opening three size deals in months in 2015, there were Dublin 1,023 new homes transactions recorded on the PPR, with Dublin accounting for 29% of the total new homes sales. Furthermore, an analysis of the new homes market with Sherry FitzGerald in Cork and Dublin reveals that sentiment has improved during the first half of 2015 with an increase in the volume of transactions, albeit from a low base. The anticipated uplift in the volume of new homes released over the upcoming months and the prices achieved will provide better insight to residential site values. In terms of residential development land, the first six months witnessed 117 million transacted, with Dublin accounting for 105 million, or 90%, of the total residential land transactions. While quarter one and two were similar in terms of the number of residential deals transacted, the latter quarter saw a significant increase in larger size deals in Dublin. 6 Irish Development Land Market Review - Q2 2015

Residential Land Market Dublin witnessed several high-profile residential development land sales in the three months to the end of June 2015. The landmark sale for this period was undoubtedly the purchase of 8.1 acres of residential zoned lands at Marianella, Rathgar, reportedly for in excess of 40 million, significantly exceeding the asking price of 30 million. The site has planning permission for 199 apartments, twelve five-bed semi-detached houses and crèche and was reportedly purchased by Cairn Homes. Several high-profile residential sites transacted in Dublin during the second quarter Cairn Homes was also involved in another notable residential development land transaction during the second quarter. It purchased a site extending to approx. 7.8 acres at Brennanstown Road, Dublin 18, for approx. 18 million. The site, which has planning permission for 149 homes was sold to the American-based Starwood Capital Group for approx. 8 million by KPMG in an off-market transaction in 2013. The former Europa Motors site near Blackrock, Co. Dublin, was sold for 7.5 million, significantly higher than the asking price of 4.9 million. The 1.3 acre infill site has been regarded suitable for a high-density residential scheme and had lapsed full planning permission for an apartment scheme. The achieved price equates to 6 million per acre, the highest residential land value per acre achieved during the opening half of 2015 in the Irish residential development land market. In Dublin, demand remains strong for well-located residential sites with planning permission. It is interesting to note that the residential development land that transacted during the second quarter accommodated planning permission for nearly 700 new dwelling units in Dublin. This is a significantly higher figure compared to quarter one. To put into perspective, the Housing Supply Coordination Task Force reported in 2014 that planning permission exists for more than 18,000 new dwelling units in Dublin. Outside the Greater Dublin Area, the most notable residential land sale was recorded in Cork, a 6.1 acre site with planning permission for 18 detached houses at Cleve Hill, Blackrock Road in Cork city. The site was sold substantially in excess of asking price of 2 million. In addition, a 19.8 acre site further afield in Sallybrook, Glanmire, Co. Cork, was sold for in excess of 2 million, albeit with no current planning permission. Other residential or mixed used sites transacted during the quarter in Cork were generally much smaller in scale. Furthermore, at the midpoint of 2015, approximately ten sites with residential zoning were sale agreed. In terms of the main participants in the development land market, Cork reported receivers as the most active vendors for prime development sites. However, the improving market conditions has resulted in the reemergence of private vendors. In Limerick city, a partially developed residential site for 11 houses at North Circular Road extending to approximately one acre was sold by NAMA for 1.1 million. During the opening half of 2015, the average residential development land value in Ireland was estimated at 1.6 million per acre. In Dublin, the average value for transacted residential land was estimated at in excess of 2.9 million per acre. 7 Irish Development Land Market Review - Q2 2015

Commercial and Mixed Use Land Market The commercial land market saw a relatively quiet second quarter of 2015 with no high-profile sites transacting during the three month period. This follows a strong opening quarter that saw 72 million worth of commercial land transacted, including notably the sale of Cumberland House for 49 million. In total, the opening half of 2015 saw a total of 74 million transacted, with Dublin accounting for 56 million, or 76%, of the total commercial land sales. Limerick saw the most notable commercial sites transacted during the second quarter. The partially completed Hanging Gardens site on Henry Street in Limerick city centre was purchased by the Limerick City Council from NAMA for a reported 750,000, equating to approx. 1.5 million per acre. That said, by the end of quarter two, Cork city and county had nearly ten commercial and mixed use development sites sale agreed, anticipating a more vibrant second half of the year. In Galway, very few commercial development sites are currently in the pipeline and no major changes are anticipated for the upcoming months, due to a lack of suitable land available. In terms of the mixed use development land market, the opening half of 2015 saw a total of 28 million transacted, with the second quarter outperforming the first. Quarter two saw the activity predominantly focussed in Dublin and the commuting counties of Meath, Kildare and Wicklow. One of the most notable deals during the quarter was a 17 acre site zoned for educational, institutional and residential use at Grace Park Road in Drumcondra, Dublin 3 sold in excess of its asking price of 9.5 million. Further afield in the Greater Dublin Area, a partly developed Bettystown Town Centre in Co. Meath, consisting of a vacant hotel and leisure centre along with zoned land and half-finished residential units, was sold for approximately 3.7 million. Cork and Galway witnessed a much more subdued quarter with the most significant mixed use infill site sold at Lower Glanmire Road in Cork City for 350,000. The 0.62 acre site has planning permission for 18 residential units and a ground floor showroom. 8 Irish Development Land Market Review - Q2 2015

Supply of Development Land The opening half of 2015 saw an increase in the supply of development land notably in the Greater Dublin Area. However, whereas the profile of available land remained focussed on small infill sites during the opening quarter of 2015, there was an increase in larger sites during the second quarter. That said, there is still a severe lack of development land available, in particular well-located residential sites with planning. Quarter two witnessed several high profile redevelopment sites coming on the market, notably a landmark 6.8 acre site Project Trinity in Ballsbridge, Dublin 4, that has a ten year planning permission to construct a large urban quarter including 490 high-end apartments, Supply of well-located residential sites with planning remains restricted a hotel, as well as retail and commercial facilities. The site guiding 120 million is currently at bidding stage, and is expected to achieve significantly in excess of that. Another notable site to come to the market, also in Ballsbridge, contains four vacant office blocks with a total of 10,000 sq m of office space in front of the existing AIB Bank Centre. The 3.7 acre site, guiding 50 million, has the potential to provide up to 28,000 sq m of much sought after office accommodation, subject to planning permission. Dublin s Dockland s Strategic Development Zone (SDZ) area saw a 1.78 acre mixed use site come available at Sir John Rogerson s Quay and Lime Street, guiding in excess of 30 million. The Dublin City Council SDZ Planning Scheme has envisioned a site ratio of 50% residential and 50% commercial use for the south docklands site. In terms of more extensive residential land sites, the quarter saw a 10 acre site with a future potential for high-end residential development at Goatstown Road in Dublin 14 brought to the market with an asking price of 7.5 million, equating to 750,000 per acre. Quarter two saw the most extensive commercial site become available at the Airside Commercial complex in Swords, Co. Dublin. The 10 acre greenfield site zoned for employment and open space is guiding 650,000, equating to 65,000 per acre. of several high profile sites coming on the market, the supply of residential development land is still perceived as highly constrained and remains dominated by smaller infill sites, with premium prices achieved for high quality land. Overall, residential zoned sites less than two acres are guiding approx. 3 million per acre in Dublin. Outside Dublin, commuting counties of Kildare and Meath saw a number of extensive greenfield sites that included areas zoned for residential development become available during the second quarter. A 28 acre site in Kilcock, Co. Kildare was guiding 700,000, equating to 25,000 per acre, along with a 33 acre site in Enfield, Co. Meath guiding 650,000, equating to approx. 19,700 per acre. It is worth mentioning that NAMA brought to the market a 15 acre site at Dublin Road in Maynooth, Co. Kildare, which instead of a requirement for initial cash payment is for sale by licence agreement. The site with planning permission for 136 houses and a crèche is NAMA s pilot project to test a model where purchaser commits to develop the site within a given time period. Tougher Business Park Portfolio in Naas, Co. Kildare is guiding 14 million and includes approx. 160 acres of industrial, agricultural and unzoned lands. The regional centres of Cork, Limerick and Galway saw more moderate increases in supply, with a significant imbalance remaining between demand and supply of well-located residential development sites. However, it is worth mentioning that the second quarter saw many of the largest residential development sites outside the Greater Dublin Area coming on the market as part of the Compass Collection, a portfolio with approx. 105 acres of residential development land across seven sites throughout Ireland, quoting in excess of 13 million, as one or more lots. Although the second quarter proved positive in terms 9 Irish Development Land Market Review - Q2 2015

Supply of Development Land Limerick saw the largest residential development site outside the Greater Dublin Area with planning permission available in Coolbawn, Castleconnell, approx. 12 km from Limerick city. The 33 acre site, is adjacent to a partly developed residential estate, with planning permission for 69 houses of which 31 are constructed. In addition, closer to the city centre, another site in Bloomfield, Annacotty, is guiding 2.7 million. The 16.2 acre site, included in the Compass Collection, has planning permission for 170 units. Cork had a positive first half of the year in terms of available residential land coming on the market, but still severely lacks larger residential sites in good locations with planning. One of the prime residential sites with planning permission coming on the market during the second quarter was a 2.5 acre site in Kerry Pike, Co. Cork. The undeveloped site, guiding in excess of 1.1 million, has planning permission for 14 houses and is part of the Mitchells Court residential estate. Further afield in Cork county, three residential sites, in Midleton, Cobh and Macroom, came on the market as part of the Compass Collection. The second quarter also saw a key commercial development site coming on the market in Cork, comprising a 25 acre greenfield site at Estuary Business Park in Carrigaline, Co. Cork, guiding 2.5 million, equating to 100,000 per acre. The most extensive site in the portfolio is a site in Moycullen, 10 km from Galway City. The 18.2 acre site has planning permission for 89 residential units and is 2.25 million. This is encouraging, as the development land market in Galway has been hampered by very tight supply. 10 Irish Development Land Market Review - Q2 2015

Recent Legislative Announcements Urban Regeneration and Housing Act (formerly known as Planning Bill No. 1) was signed into law on 28th July 2015, and will have several implications for developers and other stakeholders concerned with land use in Ireland. The new law includes several measurements that seek to incentivise urban regeneration and the provision of housing. The new Act introduces a vacant site levy that, in general, will be an annual charge of 3% of the market value of each site registered on a vacant site register, to be maintained by planning authorities. The levy applies to sites larger than 0.05 hectares (0.12 acres) that are zoned for residential purposes or are development sites designated as Regeneration Land that adversely impacts surrounding amenities and the character of the area. Furthermore, the Act reduces the amount of land required to be reserved for social and affordable housing to account for 10% of housing developments that have ten or more units. At the same time, the Act abolishes the option for developers to pay financial contribution in lieu of delivering the required housing units. To encourage new housing construction, the Act also provides for the retrospective application of reduced development contributions. Previously, reduced development contributions paid to local authorities did not apply for developments with pre-existing planning permission. 11 Irish Development Land Market Review - Q2 2015

Outlook Following a robust first half of the year and with a large number of sites anticipated to close in the upcoming months, the development land market looks set for a positive outlook for the remainder of 2015. Furthermore, additional sites are likely to be offered for sale in the latter part of 2015, and in particular 2016, as wholesale loan portfolio buyers break up their portfolios and sell sites, combined with the expectation that NAMA and Ulster Bank may accelerate the sale of sites outside their housing delivery strategy. The second half of 2015 is likely to increase visibility of the impact of the Central Bank s mortgage rules on residential development land values, when the market is tested with more site transactions and new homes sales, ultimately feeding into residential land prices. The regional centres outside the Greater Dublin Area are anticipated to witness a strengthening development land market during the latter half of the year, underpinned by the year to date recovery in house prices and increased viability in the new residential developments. Market Definitions Development Land Market Area: The Greater Dublin Area of Dublin, Kildare, Meath and Wicklow, and the regional centres of Cork, Galway and Limerick. Development Land: Lands that are zoned for agricultural use or greenfield sites with low developmental potential are excluded from the statistics. 12 Irish Development Land Market Review - Q2 2015

AUTHORS Marian Finnegan Chief Economist, Director Research +353 (0) 1 237 6341 marian.finnegan@sherryfitz.ie Suvi Cahill PhD, Researcher +353 (0) 1 237 6482 suvi.talja@sherryfitz.ie Donal Kellegher Director, Head of Advisory & Development + 353 (0) 1 639 9248 Donal.kellegher@dtz.ie About DTZ Sherry FitzGerald DTZ Sherry FitzGerald is the sole Irish affiliate of DTZ, a global leader in property services. With Irish offices in Dublin, Cork, Galway, Limerick and an associated office in Belfast, we are the largest commercial property advisory network in Ireland and are part of Sherry FitzGerald Group, Ireland s largest real estate adviser. We provide occupiers and investors around the world with best-in-class, end-to-end property solutions comprised of leasing agency and brokerage, integrated property management, capital markets, investment, asset management and valuation. www.dtz.ie 2015 CONFIDENTIALITY CLAUSE This information is to be regarded as confidential to the party to whom it is addressed and is intended for the use of that party only. Consequently and in accordance with current practice, no responsibility is accepted to any third party in respect of the whole or any part of its contents. Before any part of it is reproduced, or referred to, in any document, circular or statement, our written approval as to the form and context of such publication must be obtained.